RSU Advisor Match

QSBS Exclusion Calculator

IRC § 1202 Qualified Small Business Stock can eliminate federal tax on up to $15 million of startup gains. The OBBBA (signed July 4, 2025) introduced a tiered exclusion for post-OBBBA stock: 50% at 3 years, 75% at 4 years, 100% at 5 years. This calculator estimates your federal tax exposure under each scenario — and shows what California adds back regardless of the federal exclusion.

Gain above your cost basis (sale proceeds minus what you paid to acquire the shares)
Amount you paid to acquire the shares (strike price × shares exercised, or purchase price). Used to calculate the 10× basis alternative cap.
Enter your current or target holding period. Use 3, 4, or 5 to see each breakpoint.
The 3.8% net investment income tax applies to unexcluded gain for high-income earners (IRC § 1411). Most tech employees with QSBS meet this threshold.

How the § 1202 exclusion is calculated

QSBS gain is excluded from federal income tax — and from the net investment income tax base — up to the applicable cap per issuer per taxpayer. Under the post-OBBBA rules, the exclusion is tiered by holding period. Under the pre-OBBBA rules, you needed 5 years for any exclusion at all.

Holding period Pre-OBBBA stock (issued ≤ July 4, 2025) Post-OBBBA stock (issued after July 4, 2025)
Under 3 years No exclusion No exclusion
3 years No exclusion 50% excluded; remaining 50% taxed at 28% + 3.8% NIIT1
4 years No exclusion 75% excluded; remaining 25% taxed at 28% + 3.8% NIIT
5+ years 100% excluded (0% federal) — $10M cap 100% excluded (0% federal) — $15M cap1
Exclusion cap Greater of $10M or 10× adjusted basis Greater of $15M or 10× adjusted basis (inflation-adjusted 2027+)
The 28% rate trap on partial exclusions. Under the pre-OBBBA rules, 100% exclusion meant the unexcluded portion (0%) was a non-issue. Under the post-OBBBA tiered rules, the unexcluded portion is taxed at 28% — not the normal 15%–20% long-term capital gains rate. This makes the 3-year and 4-year tiers less attractive than they appear: you're paying 28% on the taxable slice rather than 20%. Selling at year 3 is better than no QSBS at all, but waiting to year 5 is almost always worth it if company risk is manageable. Run the comparison above.

The California problem

California does not conform to IRC § 1202. A California resident who sells QSBS with 100% federal exclusion still pays California income tax at up to 13.3% on the full gain. For a $5M gain, that's $665,000 in California state tax — even if the federal bill is zero.

This doesn't eliminate the benefit of QSBS (federal exclusion on $5M still saves over $1M). But it changes the math. Some high-balance QSBS holders explore pre-exit residency changes to states with no income tax (TX, FL, WA, NV, SD). This requires a genuine domicile change — not just a mailing address — completed before the liquidity event. The California Franchise Tax Board aggressively pursues source-income claims on equity comp. If you're considering this, get tax and legal counsel long before your IPO or acquisition.2

The exclusion cap: $15M and the 10× alternative

The § 1202 exclusion is capped per taxpayer per issuer. For post-OBBBA stock the cap is the greater of $15 million or 10× your adjusted basis. If you paid $2M for shares that are now worth $22M, your cap is max($15M, $20M) = $20M — the $2M gain from $2M to $22M is fully excludable. If your basis was $500K, the cap is max($15M, $5M) = $15M.

Married founders who structured their cap table with each spouse holding shares separately can each claim a $15M exclusion from the same company — for $30M combined. This stacking strategy requires the legal structure to be in place at the time of stock issuance. It cannot be retrofitted after the fact.

What this calculator doesn't cover

Related reading

Verify your QSBS status before the liquidity event

The moves that determine whether your equity qualifies — company gross assets at issuance, 83(b) election timing, original issuance vs. secondary purchase — happen years before any exit. Get matched with a fee-only advisor who does this QSBS analysis for pre-IPO and post-IPO tech employees every day. No obligation.

Sources

  1. McLane Middleton — OBBBA Changes to the QSBS Regime under Section 1202: Comprehensive Overview. Confirms post-OBBBA tiered exclusions (50%/75%/100% at 3/4/5 years), $15M exclusion cap, $75M gross-assets threshold, and 28% rate on unexcluded gain at 3- and 4-year tiers.
  2. IRC § 1202 — Partial Exclusion for Gain from Certain Small Business Stock. Statutory text of the exclusion, 10× basis alternative, and per-issuer cap.
  3. The Tax Adviser — QSBS Gets a Makeover: Sec. 1202's New Look (Nov 2025). Analysis of OBBBA changes, effective-date lines (July 4, 2025), and 28% rate on partial exclusions.
  4. Greenberg Traurig — QSBS Regime Expanded Under the One Big Beautiful Bill Act (July 2025). Effective-date analysis distinguishing pre- and post-OBBBA stock, stacking strategies, and per-issuer cap.

QSBS rules verified against 2026 post-OBBBA standards. Key values: $15M exclusion cap (post-OBBBA), $10M cap (pre-OBBBA), 28% rate on unexcluded gain at 3- and 4-year tiers, 3.8% NIIT on unexcluded gain. California nonconformity is established California tax law and has not changed. This calculator is for estimation only — not a substitute for professional tax advice.

RSU Advisor Match is a referral service, not a licensed advisory firm. We may receive compensation from professionals in our network. Content is for informational purposes only and does not constitute financial, tax, or investment advice. Equity-compensation tax treatment is complex and situation-specific.